Ask Inc.

Q As a convicted felon, will I find it difficult to take out loans and start a business? When I get out of jail, I'd like to open a catering company.

Carlos Igo
Richmond, Kentucky

Considering the inhospitable reception often given former inmates, entrepreneurship is an intriguing weapon against recidivism. Who, after all, is more likely to hire you than you? Most ex-prisoners, however, face considerable obstacles, which tend to depend on what they want to do and where they want to do it.

In heavily regulated industries, such as food services, a criminal record could prevent you from obtaining the licenses and permits necessary to start a business. State administrative boards that regulate such industries can be very risk averse, says Margaret Love, who served as U.S. Pardon Attorney for the first President Bush and President Clinton. On the other hand, many states prevent boards from disqualifying applicants solely on the basis of criminal records. In Kentucky, for example, one of the few new-business permits that recent felons cannot receive pertains to the sale of alcohol. Narrow as that is, it could put a real crimp in your catering business.

Financing won't be a cakewalk either. The U.S. Small Business Administration has no blanket policy denying loans to felons, but it is cautious. If the offense is "minor in nature and remote in time," meaning at least 10 years in the past, you get the benefit of the doubt, says Jim Hammersley, director of the SBA's loan programs division. Applicants for the SBA's two most common loan packages, 7(a) and 504, must submit a written explanation of any criminal charges and may be asked for additional details. In general, loans are approved if the offense seems like a mistake that won't be repeated, Hammersley says.

Nor are credit cards a good solution, because banks view former inmates as a major risk, according to Catherine Williams, vice president of the Consumer Credit Counseling Services, a Houston-based nonprofit organization. Williams recommends building a track record by finding a job and paying off your financial debts (on top of the one to society).

Of course, what you really want is a tabula rasa. Some states--such as Arkansas and Utah--are relatively willing to wipe records clean. Kentucky is stingier with the eraser and only expunges felonies related to drug possession. If your lawyer thinks forgiveness is a long shot, your best bet may be a sympathetic angel investor who--by definition--has an interest in redemption.

Q I'm about to more than double my staff, to about 30 employees. The recruiters I've talked to say they will take 30 percent of each hire's first-year salary. Would it be cheaper to hire an in-house recruiter?

Peter Kadens
CEO, Acquirent
Evanston, Illinois

Recruiters are like exercise machines. If you think you'll use one frequently, by all means invest--otherwise use someone else's. Companies that hire consistently find bringing in a professional at $60,000 to $80,000 a year to be cost effective. Those that add a head here, a head there, might as well let an outsider do it.

Companies looking for a less automated approach can use a traditional recruiter. Unfortunately, the price quotes you've been given are the norm--most recruiters pocket between 20 percent and 30 percent of a new hire's first-year salary. That said, you may be able to negotiate a flat fee since you're hiring a passel of folks, says J. Wilkinson, CEO of Peoplelink Staffing Solutions, a staffing firm based in South Bend, Indiana. Or you can outsource part of the job, for lower-level positions, and manage the rest in-house.

Resources

For more information on starting a business as a former inmate, contact the nonprofit Prison Entrepreneurship Program, which matches local executives with prisoners and provides mentoring, access to financing, and even a business plan competition. To take hiring software for a test drive, visit taleo.com, or sign up for a free pilot program at hrmc.com.